All Forum Posts by: Bill Walston

Jon is spot on! All of the rehab costs (in the example you gave) are going to have to be classified as capital expenditures and added to the cost basis of your property. That being said, this would be a perfect time to use "cost segregation." You should allocate your costs between the physical structure (Section 1250 property) and items such as appliances, cabinets, toilets, landscaping, shrubs, etc (called Section 1245 property). While the building must be depreciated over a life of 27.5 years, the Section 1245 property can actually be depreciated over a 5 or 15 year time frame depending on the asset. Some of the items may even be written off completely in the first year using Section 179 depreciation.

Hi Jennifer,

Kudos to you for educating yourself about tax deductions available to real estate investors. That are LOTS of them :-) The problem is that there are not many accountants that specialize or educate themselves on the nuances of the tax code that affect real estate investments. In other words, as my sweet mama would say "they don't know squat about 'em." But, at the end of the day, it is you, not them, who is responsible for what's on your tax return.

That being said, I think what your CPA may have a problem with is your use of the term "component" depreciation. The introduction of the accelerated cost recovery system eliminated the use of component depreciation in, if I remember correctly, 1981. So "component" depreciation really is no longer an option. If your accountant was under the impression that you calculated your depreciation expense using the disallowed component method, he of course, told you that the calculation was unacceptable.

What IS allowed, however, is "cost segregation." In a tax court case [HCA v. Commissioner, 109 TC (1997)] the court determined that Congress intended to distinguish between components that constitute section 1250 (real property) and section 1245 property (tangible personal property). The IRS reluctantly agreed that cost segregation does not constitute component depreciation and has allowed the accelerated expense. The problem is that MANY accountants are not aware of this provision. They don't keep up with tax court rulings.

My advice for selecting your accountant is the same as that for selecting your attorney: find someone with experience working with real estate investors. In fact, you are correct. Al's course probably WILL make you more knowledgeable about REAL ESTATE tax deductions - but not the tax code :-)

Regards,

Bill

Originally posted by Anthony Larson:

i keep reading using private lenders dont cost money, but the ones I'm looking at charge points and other fees, I'm I looking at the wrong hard money lender?

It's not that they don't cost money Anthony. It's that they don't cost your money - at least not money out of your pocket. It's paid with money from your deal, so the cost of the financing needs to be figured into your purchase decision. :D

Originally posted by Mr_Investor:

He's your typical guru that creates these courses,has his inner circle of friends spamming your emails to buy it through their link so you can get bonuses and Jack goes to the bank hundreds of thousands of dollars richer before he made the course.

Right you are! Now, I'm not against free enterprise, but geeeze...on "launch" day I had 50+ emails in my inbox, all nearly identical, reminding me to get Jack's land flippin' profit thingy. All promising 1000's of dollars in bonuses if I only purchased from the link in his/her email. Can you say AFFILIATE link???? Woe is me, I suppose I will NEVER be a profitable investor. I didn't buy the course.

With that being said, there are some good courses out there. Just be selective.

Originally posted by Kim Kelly:

I would be very interested to hear from as many people as possible on this issue. We have been going around and around with our CPA and RE Attorney about whether or not we should transfer our buy-and-hold properties into an LLC because of the concern about the due-on-sale clause. What are people's thoughts/experiences on this issue?

What a conundrum! :lol: On which side of the issue is your attorney and accountant? And are they even on the same side??? I would hope that your attorney is in favor of the transfer if for nothing more than the liability protection. If these are rental properties you are FAR more likely to be sued by a tenant than you are to have the DOS clause exercised by a bank. As I pointed out in an earlier post it is very unlikely that the bank will call the loan due, especially if you are transferring the property to an entity over which you maintain control. I have been buying property sub-2 for years and have NEVER had a bank call the loan. Could they? Absolutely since there is a clear transfer of ownership. Will they? Probably not.

Just remember, there is no such thing as "due on sale" jail. What is the worst that could happen if the bank DID call the loan? Now, contrast that with the worst that could happen should a tenant in one of your properties get "sue happy." I think I'd take my chances. But that's just me :D

regards,

Bill

Originally posted by Kirk B:

yes then in 3 years when interest rates go up to 8-10% see if they call due on sale then.

Interesting in theory. But I think a bank would be hard pressed to explain why it has been taking the payments for three years, and now when interest rates go up, it suddenly decides to call the loan due. But, then, that's just me :-)
regards,
Bill

Originally posted by Josh Green:

just remember that if the properties have mortgages against them then the due on sale clause may be triggered. its quite rare, but possible nonetheless

Quite right Josh. That being said, I've never seen the DOS clause enforced, especially in this case where you are transferring the property to an entity of which you maintain control. These days the banks just want to make sure they get paid. Seems they really don't care who's doing the paying..:-)
regards,
Bill

Just wondering why you would need a title company. Why not just quit claim the properties and file the deeds yourself?
regards,
Bill

I'm with Brian on this one. I just upload my mailing list and have them sent by good ol' USPS. No problems thus far.

Bill

Originally posted by Paul Kestenbaum:

Are there any other Courses out there, that are similar, & may be better, for the raising of funds??

Two that come to mind are Patrick Riddle's Private Money Blueprint and Mike Lautensack's Private Lending Secrets. (You can find both by a quick google search.) You can actually download Patrick Riddle's powerpoint presentation and script (free) at his website.
regards,
Bill